Insolvency and Bankruptcy Code, 2016 – ss. 7(2), 62 & 238A – Limitation Act, 1963 – s. 18 – Corporate Insolvency Resolution Process (CIRP) – Extension of period of limitation – Acknowledgement in books of account – A loan agreement was executed between the consortium of banks and the corporate debtor – Pursuant to which, a loan amount of Rs.129 crore was sanctioned to corporate debtor – Corporate debtor was classified as nonperforming asset (NPA) – Thereafter, parties entered into a settlement agreement – There were extensions of time and revised settlements – Ultimately, the appellant revoked the settlement – Corporate debtor acknowledged its liabilities towards the appellant in its financial statement from 2008-09 to 2016-17 – Application was filed by the appellant u/s 7(2) of IBC before the NCLT for initiation of CIRP against the corporate debtor – Corporate debtor filed a application seeking dismissal of application u/s 7(2) as time barred – NCLT dismissed the application of corporate debtor and admitted the application for initiation of CIRP – NCLAT held that CIRP was barred by limitation and the books of account cannot be treated as an acknowledgement of liability in respect of debt – On appeal, held: IBC has overriding effect over other laws – There is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC – Therefore, it is to be governed by the Article 137 of 1963 Act which prescribes period of limitation as 3 years – It is well settled that entries in books of accounts and/or balance sheets of a corporate debtor would amount to an acknowledgment u/s. 18 of the Limitation Act – Hence, an application u/s. 7 of the IBC would not be barred by limitation, if there were an acknowledgement of the debt by the corporate debtor before expiry of the period of limitation of 3 years – NCLAT erred in law in holding that the books of account of a company could not be treated as acknowledgement – In the present case, corporate debtor TULIP STAR HOTELS LTD.
acknowledge its liability in its financial statement from 2008-09 to 2016-17 and the application u/s. 7(2) was filed on 03.04.2018 – Hence, the application was well within the extended period of limitation – Impugned Judgment and order of NCLAT set aside.
Allowing the appeals, the Court
HELD:1.Under the scheme of the IBC, the Insolvency Resolution Process begins, when a default takes place, in the sense that a debt becomes due and is not paid. Where any Corporate Debtor commits default, a Financial Creditor, an Operational Creditor or the Corporate Debtor itself may initiate Corporate Insolvency Resolution Process in respect of such Corporate Debtor, in the manner as provided in Chapter II of the IBC. The provisions of the IBC are designed to ensure that the business and/or commercial activities of the Corporate Debtor are continued by a Resolution Professional, upon imposition of a moratorium, to give the Corporate Debtor some reprieve from coercive litigation, which could drain the Corporate Debtor of its financial resources. The IBC is not just a statute for recovery of debts. It is also not a statute which only prescribes the modalities of liquidation of a corporate body, unable to pay its debts. It is essentially a statute which works towards the revival of a corporate body, unable to pay its debts, by appointment of a Resolution Professional [Paras 44-46, 55][1130-B; 1146-C-E; 1149-D]
2. IBC has overriding effect over other laws. Section 238 of the IBC provides that the provisions of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law, for the time being in force, or any other instrument, having effect by virtue of such law. The IBC is a beneficial legislation for equal treatment of all creditors of the Corporate Debtor, as also the protection of the livelihoods of its employees/workers, by revival of the Corporate Debtor through the entrepreneurial skills of persons other than those in its management, who failed to clear the dues of the Corporate Debtor to its creditors. It only segregates the interests of the Corporate Debtor from those of its promoters/persons in management. Relegation of creditors to the remedy of coercive litigation against the Corporate Debtors could be detrimental to the interests of the Corporate Debtor and its creditors alike. While multiple coercive proceedings against a Corporate Debtor in different forums could impede its commercial/business activities, deplete its cash reserves, dissipate its assets, moveable and immoveable and precipitate its commercial death, such proceedings might not be economically viable for the creditors as well, because of the length of time consumed in the litigations, the expenses of litigation, and the uncertainties of realisation of claims even after ultimate success in the litigation. It is, therefore, imperative that the provisions of the IBC and the Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute. [Paras 57, 5961][1150-B-G]
3. There is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the Adjudicating Authority (NCLT). An application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the Schedule to the said Act. Under Article 137 of the Schedule to the Limitation Act, the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply. There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default. [Paras 68 & 69][1152-F-H; 1153-A]
4. As per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired. It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act. [Paras 83 & 85][1139-E-F; 1160-G]
TULIP STAR HOTELS LTD.
5. To sum up, in considered opinion of this Court an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years. In this case, the amount of the Corporate Debtor was declared NPA on 1st December 2008. By a letter dated 7th February, 2011, written well within three years, the Corporate Debtor acknowledged its liability and proposed a settlement. This was followed by several requests of extension of time to make payment and revised settlements. On 6th April, 2013, the Corporate Debtor sought extension of time to pay Rs.239,88,27,673 outstanding as on 31 st March 2013. On 19 th April, 2013, the Corporate Debtor made payment of Rs.17,50,00,000/-. On 1 st July, 2013, the Corporate Debtor acknowledged its liability – this was after the Appellant Financial Creditor revoked the settlement invoking the default clause. The Corporate Debtor acknowledged its liabilities in its financial statements from 2008-09 till 2016-17. The application under Section 7(2) of the IBC was filed on 3rd April 2018, well within the extended period of limitation. [Paras 97 & 98][1169F-H; 1170-A-B]
Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. 2021 SCC Online SC 244; Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd. (2020) 15 SCC 1; B. K. Educational Services Private Limited v. Parag Gupta and Associates (2019) 11 SCC 633 : [2018] 12 SCR 794; Swiss
Ribbons Private Limited & Anr. v. Union of India and Ors. (2019) 4 SCC 17: [2019] 3 SCR 535; Innoventive Industries Ltd. v. ICICI Bank and Anr. (2018) 1 SCC
407 : [2017] 8 SCR 33; Dena Bank (Now Bank of Baroda) v. C. Shivakumar Reddy and Another (2021)
10 SCC 330 - relied on.
Asset Reconstruction Company (India) Limited. v. Bishal Jaiswal and Anr. (2021) 6 SCC 366; Credit &
Development Syndicate Now Called I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Others (1999) 3 SCC 80 : [1999] 1 SCR 555; Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. (2019) 10 SCC 572 : [2019] 13 SCR 224; Jignesh Shah v. Union of India (2019) 10 SCC 750 : [2019] 12 SCR 678; Radha Exports (India) (P) Ltd. v. K.P. Jayaram (2020)
10 SCC 538; Vashdeo R. Bhojwani v. Abhyudaya Cooperative Bank Ltd. & Ors. (2019) 9 SCC 158 : [2019]
12 SCR 75; Balkrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan [1959] 2 Suppl.
2 SCR 476; Laxmi Pat Surana v. Union Bank of India (2021) 8 SCC 481; Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria and Others AIR 1961 SC 1236 : [1962] 1 SCR 140; Reliance Asset
Reconstruction Co. Ltd. v. Hotel Poonja International Pvt. Ltd. 2021 SCC Online SC 289; Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium Corpn. of India Ltd. (1971) 1 SCC 67 : [1971] 2 SCR 623 – referred to. Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff 1961 SCC Cal 128 : AIR 1962 Cal 115; South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana ILR (1972) 2 Del 712; Hegde Golay Ltd. v. State Bank of India 1985 SCC Kar 290 : ILR 1987 Kar 2673; Ferro Alloys Corporation Limited v. Rajhans Steel Limited (1999) SCC Online Pat 1196 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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